Consol Energy cutting retiree health benefits, phasing out pension

Oct. 02--Consol Energy Inc. is cutting health benefits for retirees and will shift employees away from its traditional pension plan to one that requires them to contribute money toward their retirement, joining a trend among corporations struggling with rising costs for employee benefits.

The Cecil-based coal and gas company began telling its nearly 4,400 employees this week about the changes, which it expects to help cut costs and make it more competitive in volatile energy markets.

"The decision to make these changes did not come without careful analysis and thoughtful consideration as to the impact on current and future employees of Consol Energy, as well as our retirees," said spokesman Brian Aiello.

Consol joins companies such as Alcoa, Sears, IBM and Walgreens that have recently cut benefits for retirees or active workers, or switched them to health insurance exchanges. The percentage of large businesses offering retiree health coverage dropped to 28 percent last year from 66 percent in 1988, according to a Kaiser Family Foundation/Health Research & Educational Trust survey.

Companies have used generous health care and retirement benefits to attract workers but are assessing whether it makes financial sense. Many have eliminated traditional pensions in favor of a 401(k) or hybrid plan -- a decades-long trend. They are making similar moves with health insurance because of rising costs for medical coverage and changes brought about by the Affordable Care Act. Benefits have become an easy target to reduce expenses and grow profits. "It just follows the trend of big corporations, because having retiree liability on the books is a tremendous strain on the balance sheet," said health care analyst James McTiernan, area vice president at Gallagher Benefits Services, Downtown.

It also follows a series of changes at Consol that caused pain for employees and retirees as it shed jobs and mines to cut costs and put more emphasis on gas drilling. The company last year sold five union mines to Ohio-based Murray Energy, which recently told about 1,200 retirees from those mines that they would lose health benefits at the end of this year. On Jan. 1, about 900 Consol retirees lost health benefits but received payments to offset their costs.

"A lot of people are very bitter about the loss of medical benefits," said Larry Cuddy, 63, of Washington, who retired seven years ago and was among the 900 whose benefits changed.

The company is using a combination of cash payments, a grace period for retirees and increased 401(k) contributions to lessen the blow.

The changes won't affect medical coverage for active employees. But once they retire, current employees will no longer be eligible for medical coverage, effective Wednesday. Consol this month will make cash payments to about 3,100 current, eligible employees ranging from $2,500 to $100,000, depending on how long they've worked there and what kind of benefits they would have gotten. Some employees already were not eligible.

About 4,400 employees and spouses who retired before Wednesday will continue to get their benefits until Jan. 1, 2020. By that point, about 90 percent of them will have reached the Medicare-eligible age of 65.

"They're making an effort to take care of people as best as they can," McTiernan said of the cash payments and five-year buffer. "If you're fairly close to Medicare ... that could be a heck of a deal."

The company's move away from a defined pension plan that pays retirees a set amount will be more gradual. New employees will not enroll in both the pension and 401(k) current employees get. They will only get the 401(k), though Consol is increasing its contribution by 3 percent of employees' base pay.

Those older than 40 with at least 10 years of service will continue to participate in both, with 6 percent contributions to the 401(k). Current employees who don't meet those requirements -- about 2,800 people -- will have their pension frozen and will get the increased contribution to the 401(k).

"It's a pretty good trade-off," said Cuddy, who noted most younger workers never expected to get a full pension or retiree health benefits.

Consol did not say how much money it expected to save with the changes. Company leaders will discuss the latest quarterly financial results Oct. 28.

Expenses and costs have risen recently -- $1.8 billion in the first six months of 2014 compared to $1.6 billion in the same period last year -- as the company struggled with weak coal markets domestically and abroad and increased its gas drilling in the Marcellus shale.

The announced moves will slash health care expenses and reduce the chance of an unfunded pension fund, McTiernan said.

"This really improves the financial picture of a company," he said.

Consol's stock price has dropped by about 22 percent since reaching a six-month high of $47.45 in June, closing at $36.84 on Wednesday.

David Conti is a staff writer for Trib Total Media. He can be reached at 412-388-5802 or [email protected].

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